Prepared remarks
Good afternoon. Thank you for joining us for the Lionsgate Studio Corporation's fiscal 2026 third quarter conference call. We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Adam Fogelson; President of Worldwide Television Distribution, Jim Packer; and Senior Adviser to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein. The matters discussed on the call also include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. I'll now turn the call over to Jon.
Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. Today, we're reporting a quarter that not only keeps us on track for our fiscal '26 financial targets, but positions us for significant growth in fiscal '27 and beyond as the investments we've been making into our intellectual property portfolio translate into strong and growing momentum across our businesses. During the quarter, we launched a new franchise with the worldwide box office success of Paul Feig's thriller, The Housemaid. We expect the sequel, The Housemaid Secret to begin production later this year. Released 12 days before the end of the quarter, the majority of Housemaid's contribution will fall in Q4 and continue into fiscal '27. Last week, we began production on John Rambo, directed by Sisu's Jalmari Helander, with rising star Noah Centineo from our Lionsgate Television series, The Recruit, and we announced plans to produce one of our most iconic properties, Dirty Dancing, shepherded by Hunger Games producers, Nina Jacobson and Brad Simpson, and starring Jennifer Gray.
These are part of a growing portfolio of more than 40 active franchise properties that are being extended across multiple platforms, including film, television, video games, and live experiences. After teasing it on the Grammy telecast, the next day we released the full trailer of Michael to wildly enthusiastic fan response as we continue to ramp up the campaign for the film's April 24 global rollout. With three major tentpoles anchoring our fiscal '27 slate, we expect to continue building momentum generated by The Housemaid and other recent box office successes. Our television group has secured renewals for 12 of our 13 current scripted series. Notably, these renewals, which include The Studio, The Hunting Wives, and The Rainmaker, are spread across 12 different buyers. Finally, our film and television library achieved its fifth straight record quarter with trailing 12-month revenue reaching an all-time high of $1.05 billion.
Turning to our individual segments, our Motion Picture Group had a strong quarter with the success of Francis Lawrence's profitable and critically acclaimed adaptation of Stephen King's, The Long Walk. Ruben Fleischer’s Now You See Me: Now You Don’t earned nearly $250 million at the worldwide box office, and of course, The Housemaid, as we roll out a diversified slate that spans every genre and budget category. Both The Housemaid and Now You See Me achieved exceptionally strong international box office performances, particularly in the markets where we self-distribute, the U.K. and Latin America, bolstering our position as the only studio licensing a steady supply of major properties to leading international theatrical distributors. As I mentioned, we continue to expand the largest and most valuable portfolio of franchises and other branded IP outside the five major studios, fueling our slate with upcoming tentpoles like Michael in April, the Hunger Games, Sunrise on the Reaping in November, and Resurrection of the Christ Parts 1 and 2 next March and May, respectively.
Behind them, The Housemaid Secret, John Rambo, Dirty Dancing, Caine, the next film from the John Wick franchise, Naruto, American Psycho, and new installments of Saw and Blair Witch are all either in production, being readied for production, or in fast-track development, a really powerful slate of intellectual property that matches the right creative auspices with the right content. In television, our series continue to perform well across every platform. The Studio, which just began shooting its second season for Apple TV, was one of the most critically acclaimed shows of the year. The Hunting Wives was Netflix's top non-original English language series for the second half of last year and debuted high on their global list of top 10 shows despite only airing on Netflix in the U.S. The Rainmaker was USA Network's most watched freshman series in seven years. Robinhood has ranked number one on MGM+ for nine weeks in a row, and The Rookie has been resurgent in its eighth season on ABC.
The Rookie: North spin-off pilot begins shooting in Vancouver later this month, and Spartacus: House of Ashur is one of the best-reviewed series on Starz with a 92% Rotten Tomatoes rating, performing well across its international platforms. In a business where renewals are the name of the game, the renewal of nearly every one of our scripted shows anchors a fiscal '27 slate with double the number of scripted episode deliveries and a diversified mix of cost-plus and retained rights models, balancing profitability with long-term value creation. Thirty-three percent of our record library revenue this quarter comes from our television series, more than doubling the percentage from 10 years ago. Achieving five record quarters in a row reflects the work we put into managing and growing that library, enhancing it with new technologies, monetizing it across new buyers and platforms, selectively buying back rights, and striking the right balance between acquisitions and organic growth.
As a result, we have one of the youngest major libraries of any studio, with 85% of our 20,000-plus titles produced since 2000, and nearly two-thirds of library revenue coming from titles outside the top 50. In closing, we like our place in the media ecosystem and the trajectory of our businesses. Our film and television pipelines are strong. Our library continues to grow, and we're replenishing it with valuable new franchises and brand-defining television series. We're a leading global content company at a time when content is king, critical to AI, essential to our partners, and the subject of every conversation around M&A and industry consolidation. We continue to lower our costs and restructure our businesses, so we can move faster and more efficiently than ever before. We continue to align ourselves with our shareholders, adding former U.S. Treasury Secretary and major shareholder, Steven Mnuchin, to our Board, converting our dual share structure into a single class of stock, and letting our shareholder rights plan lapse in May.
Although there are many disruptive forces reshaping our industry, the rise of AI, the power of social platforms, and the increased tempo of M&A, to name just a few, we believe that we are prepared to adapt to all of them as a dynamic, agile, and entrepreneurial company positioned for sustainable growth. Now I'd like to turn things over to Jimmy.
Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal third quarter 2026 studio financial results and provide an update on the balance sheet. Lionsgate Studios' revenue was up 1% year-over-year to $724 million. Adjusted OIBDA was $85 million, and operating income was $36 million. Reported fully diluted loss per share was $0.16, and fully diluted adjusted earnings was $0.01 a share. Net cash flow used in operating activities was $109 million, while use of adjusted free cash flow for the quarter was $58 million. Trailing 12-month library revenue continued to demonstrate strength, with growth of 10% year-over-year to $1.050 billion and reached record levels for the fifth consecutive quarter. Now breaking down our performance in the quarter, I'll start with a discussion of our Studio segment profit. Studio segment profit, which reflects our Motion Picture and Television segment profits before corporate overhead expense, has grown sequentially throughout the fiscal year and was $114 million in the quarter.
This sequential cadence reflects the back-end loaded fiscal year we previously outlined, and we expect it to continue into Q4. We reference our Studio segment profit because this metric is generally more comparable to the studio OIBDA figures reported by many of our peers, as most other media companies do not include corporate overhead expenses in their reported studio results. Moving to Motion Picture, revenue grew 35% year-over-year to $421 million, driven by the release of Now You See Me: Now You Don't, The Housemaid, and Good Fortune. Segment profit expectedly declined year-over-year to $59 million, primarily on the timing of P&A spend to support three wide theatrical titles, including the December 19 release of The Housemaid. The quarter included approximately $100 million of P&A spend in the U.S., which is helping drive future value across our release slate and replenishing the library.
Looking ahead, we expect Motion Picture will end the fiscal year strong as we have significant carryover box office from The Housemaid and an increase in the number of titles entering their pay-one window in Q4. As we outlined last quarter, there will be some P&A spend in the fourth quarter tied to the April release of Michael. However, we are confident this and other key tentpole theatrical releases in fiscal '27 will drive robust growth in our Motion Picture business. Moving to TV, revenue was $303 million, and segment profit was $56 million. Revenue and segment profit were expectedly down year-over-year due to the previously mentioned timing of episodic deliveries in the quarter, partially offset by strength in television library revenue. As a reminder, the prior year's third quarter included the financial contribution from the inaugural season of The Studio, creating a difficult comparison.
As Jon highlighted, the television group has already secured renewals for an impressive 12 out of 13 of its current scripted series, which reinforces our confidence in achieving our previously outlined goal of doubling scripted episodic deliveries in fiscal '27. Now let's take a look at the balance sheet. We ended the quarter with $1.75 billion of net debt, and leverage expectedly increased to 7.4x due to lower trailing 12-month adjusted EBITDA. The revolver had $770 million of undrawn capacity available at the end of the quarter, and we had $213 million of cash on the balance sheet. We anticipate leverage will meaningfully decline from these levels as adjusted OIBDA and free cash flow improve. Additionally, our backlog remains elevated at $1.5 billion, up 26% year-over-year. As you will recall, backlog represents off-balance sheet contractual orders not yet delivered and is indicative of the visibility we have in future revenues and cash flow.
Looking forward, we anticipate exiting the fiscal year with significant momentum heading into fiscal '27 across both our Motion Picture and television businesses, with Q4 adjusted OIBDA expected to improve materially from Q3 levels on strong theatrical carryover. With continued carryover profit from our fiscal '26 film slate, a tentpole-heavy fiscal '27 release schedule, and increased scripted episodic deliveries, we remain on track to deliver strong adjusted OIBDA growth in fiscal '27 relative to fiscal '25. Now I'd like to turn the call over to Nilay for Q&A.
Thanks, Jimmy. Operator, can we open the lines up for Q&A?
Questions and answers
The first question comes from David Joyce with Seaport Research Partners.
I appreciate that 2027 is shaping up very strongly with theatrical releases that we've been talking about and the doubling of episodic deliveries on the TV side. What can give us confidence in the sustainability of these volumes and the profitability of the business model given the backdrop of industry consolidation? What would you see happening in terms of the buyers or other platforms where you can monetize your content?
David, it's Kevin Beggs responding. We're seeing some promising developments in the market, with several new players we hadn't partnered with before now collaborating with us. Jon mentioned The Rainmaker on USA, which has turned out to be a fantastic new partnership as they return to scripted television for their second season, and it's performing well. We also have a hit with Robin Hood on MGM+, where we hadn't previously worked, and we have more projects in development there. Many buyers who were previously cautious are now opening up to more commissions. We're continuing to find innovative ways to get shows produced using cost-plus and deficit models. Our distribution team is exceptionally strong, securing commissions in international markets and bringing those shows back to the U.S. Additionally, many of the shows mentioned are long-running successes, such as The Rookie in its eighth season, which has been a significant achievement for us at ABC. These factors contribute to our optimistic outlook on sustaining this momentum, though it isn't without challenges and requires constant attention and innovative strategies on our part.
David, this is Jim Packer. One thing I would say also from a buying perspective, if you just look at our trailing 12 months and the directional number, it's obviously a new benchmark. We always have an ebb and flow with buyers. Certain buyers are slowing down because of mergers or acquisitions or various things, but others stand up and start to fill those voids. I don't have a streamer that I need to take into consideration, so we can really play the market. I think overall, the trends are going to continue. I also have a slate coming in from Adam of Now You See Me, Dirty Dancing, Hunger Games, another Wick and SAW. If you look at those franchises, all of those have other film and TV products associated with them, and that helps my drag along. So I feel pretty good about it.
Yes. From a macro perspective, both the potential existing bidders are discussing the addition of more movies to enhance their streaming platforms globally. Ultimately, stronger, larger streamers will be beneficial for us regarding original content and selling our library, contrary to the notion that this consolidation will have negative effects. I actually view it more positively. Both bidders are interested in producing movies, and I believe they are both committed to this goal. David recently outlined a significant movie slate in the U.K., which supports our desire for more films in the market. We believe this will help bring audiences back to theaters, leading us towards a favorable overall environment.
The next question comes from Thomas Yeh with Morgan Stanley.
One more maybe on the health of the more immediate downstream window for Motion Picture. There was a big pay-one deal struck recently, obviously, and I know you have an Amazon agreement kicking in as well. When you have a success like The Housemaid, how should we think about the carryover benefits, particularly just in the context of the pay-one monetization of that, and whether you see maybe home video rental market as something that could be strong as well? Or does that get squeezed by pay-one becoming more prominent? And then on the AI front, I saw the appointment of a Chief AI Officer. Maybe give us an update on the Runway partnership and what other avenues you're maybe looking to unlock here with that position; that would be very helpful.
Yes. On Housemaid, great carryover. Thanks. It's fantastic. Pay-one will be rolling over. We're very excited about that as part of the carryover into Q4 and then obviously, major carryover into '27 on Housemaid's and quite frankly, the entire fiscal '26 film slate. So we're really excited about that.
Yes. Thomas, I would say on the pay-one environment in general, I think the Sony-Netflix deal solidified the fact that pay movies are some of the most valuable content out there. We saw it; we have a great pay-one deal with Starz. We have Amazon after Starz. Housemaid, as you mentioned, is actually going to be Starz and HBO. The key for us is that right after these pay-one windows are over, you have multiple years that you can go into the open market and people can really bid on these titles. The beauty of having a Housemaid is we haven't had one of kind of this level in a while. That's going to really help the entire team, and we go out to an ecosystem that can have a shot at something that's going to be a great, I think, a great bidding situation for us.
And I'll answer your question on AI. Look, we have the opportunity to bring in somebody, Kathleen Grace. You read about her. She obviously has a very strong grasp of AI, of the AI ecosystem. She's going to report directly to me, which shows how important this is as we integrate it into every facet of our business. I should point out, she comes from both a creative background, as well as from a company that really has a mandate to protect creators and talent in respect to AI adoption. That's a real priority for us. In terms of Runway, look, we have a really strong relationship with Cristobal and all of his people, and are experimenting in a lot of ways. I would say Kathleen will be the point person for us, the point of the spear in terms of any conversation we have, and I expect to have some pretty interesting ones with all of the major AI companies in terms of potential future partnerships.
The next question comes from Omar Mejias with Wells Fargo.
It's DK Hall filling in for Omar. Since I'm here tonight, I might ask a few questions, if that's alright. First, Jon, I wanted to follow up on your comments about AI. Could you elaborate on some of the broader initiatives within the company? I understand that Jim Packer has some advantages in his programming of fast channels. We've heard that aspects like reshoots and visual effects can also benefit. Alongside the partnerships, I’d be interested in how you’re planning to integrate AI into daily operations. Michael, I noticed you on CNBC in December discussing the success of The Housemaid and another faith-based film that may have been from Lionsgate. As you consider the middle-budget targeted area, what excites you most about the upcoming slate beyond Michael in fiscal '27? Finally, Jimmy, you've mentioned a lot about the anticipated EBITDA growth. Do you see any opportunities for both inorganic and organic deleveraging as you look forward?
Let's start with Adam.
Yes. So as it relates to the opportunities in the mid-budget space, we're excited to be working off of the success that we've had recently. Obviously, The Housemaid was an incredibly well-priced film that generated massive returns. Similarly, The Long Walk was loved by critics, loved by audiences, and we worked with Francis Lawrence and our talent partners to make sure we made it for a price where it could deliver a spectacular return on investment. We've got a couple more coming in the very near future. Strangers is the third chapter of a trilogy made for such an incredibly smart and responsible price that we're looking at fantastic results, and I can only imagine follows right on its heels. Sequel to the highest grossing faith movie that the studio has had. We have a bunch more films coming that fit into that category. So alongside the tentpoles, alongside the Michael's and the Hunger Games and the Resurrections, we've got a bunch of films in the low and mid-budget category that we feel really good are made with the right creative partners, made for the right price, have a marketing hook embedded in the idea that we can work off of. When we look at the slate in total, we think we're going to turn out some really good returns.
Yes, I'll go into more detail about AI DK, but you covered a lot of important points. You mentioned scheduling FAST channels, and we're indeed working on that postproduction, enhancing some effects, which I believe I've mentioned before. We effectively used it in Spartacus and plan to utilize it even more this year. We also apply it for previews in the Motion Picture business and are considering its use for improving some script revisions while collaborating with the writers. We have integrated it into all our technical operations, which is fairly straightforward. If we're experimenting with it in original content creation, we might be, but I’m not going to elaborate on that.
Yes, regarding your question about inorganic deleveraging, 3 Arts presents an opportunity to reduce debt, but we are in a strong position there, and that is not our main focus. I want to reassure you about the organic deleveraging that will happen naturally. You can see our pipeline and the backlog of $1.5 billion, with 80 percent of that being future revenue and cash flows expected within the next 15 months. We mentioned this is the peak leverage point. With our trailing twelve months and free cash flow, we anticipate significant carryovers into 2027, which makes us feel confident about our deleveraging. I expect to be in the mid-4s by the middle of fiscal 2027 and likely in the 3 to 3.5 range by fiscal 2028. This deleveraging is happening naturally.
The next question comes from Brent Penter with Raymond James.
First one on the M&A topic you brought up. Warner Bros. obviously commanding a very high valuation and has had three large, sophisticated bidders. The question is, why now? Why do you think there's so much interest in this kind of studio asset now in particular? And for Lionsgate, it seems like you all have more openly talked about M&A recently, and you're letting the poison pill expire. So the same question to you all in terms of why would now make sense for you to participate in M&A versus sometime in the past?
Do you want me to answer.
We think that recognizable world-class IP has never been more valuable, and you're certainly seeing a validation of premium content when you have those well-heeled players pursuing Warner Bros. We don't know who's going to end up with that, but we do believe that is the first domino to fall.
Okay. Okay. And then a financial question. So on OIBDA, my understanding has always been OIBDA gets hit for the financing cost of production loans on films, which is why we don't include those in net debt or EV valuation multiples. Can you just update us on how much film financing cost there is above the line that hits OIBDA?
Yes. I mean, naturally, whether you're using production loans or not for working capital or to bridge and true up cash flows between cash out and cash in and better align, you capitalize industry, you capitalize interest above the line, and that becomes part of your production cost that amortizes through. That's fairly natural. For us, it's really more about managing our working capital. It's a great source, if you will, of film obligation that matches up cash outflows, which naturally occur 12 to 18 months ahead of release or delivery of episodic deliveries, and it's just a nice mechanism like any other working capital on the balance sheet to match cash flows. It's just good financial discipline.
The next question comes from Vikram Kesavabhotla with Baird.
My first one is on Michael. Just wondering if you could talk more about the reception to the marketing efforts there. You released the official trailer a few days ago. How has that performed relative to your expectations? And what else are you monitoring in terms of the data points to inform the potential success of that film? And then separately, you talked about extending the value of your IP into other areas like video games and live experiences. Could you talk more about how some of those initiatives are going? And what are some of the latest examples of where those strategies have been particularly impactful?
Sure, it's Adam. Thanks for the question, Vikram. I can tell you that we have actively started screening the movie, and the response has been extremely positive. We love the film that has been produced, which is a great asset, and we are excited for everyone to see it. Regarding the release of the latest trailer, it has broken records for us, being the most viewed music biopic trailer and ranking highly in views among some of the biggest movies in the past decade. In addition to views, we are tracking sentiment and engagement, using advanced tools to analyze how people are responding and sharing the content. Every metric is performing strongly. Adding to this is the commitment from IMAX and large formats to ensure we have a solid presence, along with the positive enthusiasm from all regions worldwide, which is very promising. While it's important not to get ahead of ourselves, everything seems to be aligning very well.
As for your second question, the financial advantages of our non-theatrical opportunities will take a few years to fully realize, but we have made substantial progress across all platforms. We launched the Hunger Games Live in London with fantastic reviews and attendance. The Now You See Live event in Australia also received great reviews and turnout. Our Wonder State Show has been well-received in Boston, and we are eager to share our next opportunities there. Plans for Dirty Dancing and La La Land's live stage adaptations are coming together nicely. Regarding games, we'll have more updates on John Wick soon, and there are exciting developments ahead for that and several other projects. There has been significant progress over the past 18 months, and we anticipate a lot of positive discussion not only about audience response but also about revenue contributions.
The next question comes from Peter Supino with Wolfe Research.
Jack is asking for clarity on the sources of growth for library revenues and the contribution from FAST services.
Jack, it's Jim Packer. Well, first of all, again, as I said earlier, the trajectory of it has been strong. It's really driven by our core of film and TV. This particular quarter, we had a lot of Hunger Games revenue flowing through with some pay windows, delivering a new season of Ghost to Paramount+. Obviously, I'm sure everybody has known and read about Mad Men going to HBO Max. That was very helpful this quarter. If you look at the new platforms and what we're doing with self-directed licensing, it's FAST, it's AVOD revenue share, Amazon add-on channels. That's a very consistent piece of revenue for us. It's around 6% of this number growing next year, hopefully to between 10% and 15% of our trailing 12. Lastly, you just look at our EST and VOD, which is the rental and the buying of movies and TV shows globally. That transactional piece is about 10%, and it's very consistent, very strong. As new movies come through, as I mentioned earlier, with all of these franchises that Adam's team is revitalizing, all of that content gets benefited. I feel pretty good about it, and all of it's coming together to keep the numbers high.
The next question comes from Matthew Harrigan with Benchmark.
The other interesting implication of the TV scripted doubling, aside from its effect on the LTV, is how you plan to scale that. Certainly, AI plays a role, and many believe that over time, you will notice the software stock sell-off and the anticipated transformational effects. However, in the near term, it could be argued that the benefits are overstated, as early indicators are not reflected in many macroeconomic figures. It seems counterintuitive to think that you can achieve this, especially since you're not producing widgets, and even doubling widget production in a year is a significant challenge. You've also been keeping a strict control on costs. So how are you managing to achieve this? It seems like quite a monumental task just to get it done.
Matthew, it's Kevin again. We're finally moving past the strike's impact, which took longer than expected. COVID continued to affect the situation even after it was deemed over. A significant development is Skydance completing its acquisition of Paramount, along with Paramount+ expanding its partnerships. They plan to take further steps in this direction. Overall, the reluctance among buyers is easing, allowing for more risk-taking and budget approvals for series. We are able to produce high-quality shows economically, like The Studio, which has not only received critical acclaim but is also a major success for Apple. Additionally, we can collaborate effectively with platforms that have smaller budgets, making us a valuable partner. Jim and Agapy's team are focusing on international numbers that support our business model. As a studio that sometimes finances deficits and distributes globally, we are among the few companies that can operate independently of internal streaming needs, as Jim mentioned. This makes us a strong collaborator. The pace of our progress is accelerating compared to last year.
And clearly, you have the people to do that in place.
We have an amazing team. We have got an incredible group that I'm honored and humbled to work with across our scripted and unscripted groups. Obviously, the partnership with 3 Arts continues to provide great dividends. Hunting Wives is an amazing success story for our two units and one for Netflix and our international partners around the world. We look for those opportunities and really convert on them when we find them. Part of it is being nimble and quick, quick decision-making that comes from the top down from Jon to myself and Sandra and our group, and really just top creative people in Scott and Jocelyn and me and my group. And that's the secret sauce. Part of it is being nimble enough to move on these opportunities quickly.
This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.
Please refer to the Press Releases and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.